Question

1- Which combination of policies are likely to provide Keynesian stimulus to an economy in a depression?

Tax cuts on investment and increases in defense spending.

An increase in the income tax rate and an increase in transfers going to unemployed workers.

An increase in the income tax rate and cuts in defense spending.

An increase in salaries paid to members of Congress and a cut in the money supply.

2-

How would you describe the state of the U.S. economy during the Great Depression?

There was a prolonged period of very high unemployment and negative or low GDP growth. There was a brief period of deflation.

There was a prolonged period of very high unemployment and very high rates of inflation. GDP growth was slow.

There was a prolonged period of very low unemplyment and negative real interest rate. GDP growth was slow.

There was a prolonged period of deflation and volatile GDP growth. There was a brief period of unemployment.

3-

Will deflation make an economic downturn more or less severe?

More severe. Deflation increases the real value of debt leading to more bankruptcies.

Less severe. Deflation lowers the real value of debt leading to fewer bankruptcies.

Less sever. Deflation increases the real value of debt leading to greater investment and spending by savers.

More sever. Deflation lowers the real value of debt and prices leading to more consumer spending.

More severe. Deflation increases the real value of debt leading to lower prices, more output and more bankruptcies.

Less sever. Deflation leads to lower prices, more consumer spending and economic expansion.

Answer 1